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G.R. No.

166704 December 20, 2006 Agrifina appended a copy of the Counter-Affidavit


executed by Felicidad in I.S. No. 93-334, as well as
AGRIFINA AQUINTEY, petitioner, copies of the promissory notes and acknowledgment
vs. receipts executed by Felicidad covering the loaned
SPOUSES FELICIDAD AND RICO TIBONG, amounts.5
respondents.
In their Answer with Counterclaim,6 spouses Tibong
admitted that they had secured loans from Agrifina. The
DECISION proceeds of the loan were then re-lent to other borrowers
at higher interest rates. They, likewise, alleged that they
had executed deeds of assignment in favor of Agrifina,
CALLEJO, SR., J.: and that their debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong, this
Before us is a petition for review under Rule 45 of the resulted in a novation of the original obligation to
Revised Rules on Civil Procedure of the Decision1 of Agrifina. They insisted that by virtue of these
the Court of Appeals in CA-G.R. CV No. 78075, which documents, Agrifina became the new collector of their
affirmed with modification the Decision2 of the debtors; and the obligation to pay the balance of their
Regional Trial Court (RTC), Branch 61, Baguio City, loans had been extinguished.
and the Resolution3 of the appellate court denying
reconsideration thereof. The spouses Tibong specifically denied the material
averments in paragraphs 2 and 2.1 of the complaint.
The Antecedents While they did not state the total amount of their loans,
they declared that they did not receive anything from
On May 6, 1999, petitioner Agrifina Aquintey filed Agrifina without any written receipt.7 They prayed for
before the RTC of Baguio City, a complaint for sum of that the complaint be dismissed.
money and damages against the respondents, spouses
Felicidad and Rico Tibong. Agrifina alleged that In their Pre-Trial Brief, the spouses Tibong maintained
Felicidad had secured loans from her on several that they have never obtained any loan from Agrifina
occasions, at monthly interest rates of 6% to 7%. Despite without the benefit of a written document.8
demands, the spouses Tibong failed to pay their
outstanding loan, amounting to P773,000.00 exclusive of On August 17, 2000, the trial court issued a Pre-Trial
interests. The complaint contained the following prayer: Order where the following issues of the case were
defined:
WHEREFORE, premises considered, it is most
respectfully prayed of this Honorable Court, after due Whether or not plaintiff is entitled to her claim of
notice and hearing, to render judgment ordering P773,000.00;
defendants to pay plaintiff the following:
Whether or not plaintiff is entitled to stipulated interests
a). SEVEN HUNDRED SEVENTY-THREE in the promissory notes; and
THOUSAND PESOS (P773,000.00) representing the
principal obligation of the defendants with the stipulated Whether or not the parties are entitled to their claim for
interests of six (6%) percent per month from May 11, damages.9
1999 to date and or those that are stipulated on the
contracts as mentioned from paragraph two (2) of the The Case for Petitioner
complaint.
Agrifina and Felicidad were classmates at the University
b). FIFTEEN PERCENT (15%) of the total accumulated of Pangasinan. Felicidad's husband, Rico, also happened
obligations as attorney's fees. to be a distant relative of Agrifina. Upon Felicidad's
prodding, Agrifina agreed to lend money to Felicidad.
c). Actual expenses representing the filing fee and other According to Felicidad, Agrifina would be earning
charges and expenses to be incurred during the interests higher than those given by the bank for her
prosecution of this case. money. Felicidad told Agrifina that since she (Felicidad)
was engaged in the sale of dry goods at the GP Shopping
Further prays for such other relief and remedies just and Arcade, she would use the money to buy bonnels and
equitable under the premises.4 thread.10 Thus, Agrifina lent a total sum of P773,000.00
to Felicidad, and each loan transaction was covered by

1
either a promissory note or an acknowledgment Oct. 19, 1989
receipt.11 Agrifina stated that she had lost the receipts
signed by Felicidad for the following amounts: 7%
P100,000.00, P34,000.00 and P2,000.00.12 The
particulars of the transactions are as follows: January 1990

Amount 2,000.00

Date Obtained Nov. 12, 1989

Interest Per Mo. 6%

Due Date April 28, 1990

P 100,000.00 10,000.00

May 11, 1989 June 13, 1990

6% -

August 11, 1989 -

4,000.00 80,000.00

June 8, 1989 Jan. 4, 1990

- -

- -

50,000.00 34,000.00

June 13, 1989 -

6% 6%

On demand October 19, 1989

60,000.00 100,000.00

Aug. 16, 1989 July 14, 1989

7% 5%

January 1990 October 198913

205,000.00 According to Agrifina, Felicidad was able to pay only


her loans amounting to P122,600.00.14
Oct. 13, 1989
In July 1990, Felicidad gave to Agrifina City Trust Bank
7% Check No. 126804 dated August 25, 1990 in the amount
of P50,000.00 as partial payment.15 However, the check
January 1990 was dishonored for having been drawn against
insufficient funds.16 Agrifina then filed a criminal case
128,000.00 against Felicidad in the Office of the City Prosecutor. An
Information for violation of Batas Pambansa Bilang 22

2
was filed against Felicidad, docketed as Criminal Case
No. 11181-R. After trial, the court ordered Felicidad to No date
pay P50,000.00. Felicidad complied and paid the face
value of the check.17 Rita Chomacog

In the meantime, Agrifina learned that Felicidad had re- 4,480.00


loaned the amounts to other borrowers.18 Agrifina
sought the assistance of Atty. Torres G. A-ayo who August 8, 1990
advised her to require Felicidad to execute deeds of
assignment over Felicidad's debtors. The lawyer also September 23, 1990
suggested that Felicidad's debtors execute promissory
notes in Agrifina's favor, to "turn over" their loans from Antoinette Manuel
Felicidad. This arrangement would facilitate collection
of Felicidad's account. Agrifina agreed to the 12,000.00
proposal.19 Agrifina, Felicidad, and the latter's debtors
had a conference20 where Atty. A-ayo explained that October 19, 1990
Agrifina could apply her collections as payments of
Felicidad's account.21 March 30, 1991

From August 7, 1990 to October, 1990, Felicidad Rosemarie Bandas


executed deeds of assignment of credits (obligations)22
duly notarized by Atty. A-ayo, in which Felicidad 8,000.00
transferred and assigned to Agrifina the total amount of
P546,459.00 due from her debtors.23 In the said deeds, August 8, 1990
Felicidad confirmed that her debtors were no longer
indebted to her for their respective loans. For her part, February 3, 1991
Agrifina conformed to the deeds of assignment relative
to the loans of Virginia Morada and Corazon Dalisay.24 Fely Cirilo
She was furnished copies of the deeds as well as the
promissory notes.25 63,600.00

The following debtors of Felicidad executed promissory September 13, 1990


notes where they obliged themselves to pay directly to
Agrifina: No date

Debtors Virginia Morada

Account 62,379.00

Date of Instrument August 9, 1990

Date Payable February 9, 1991

Juliet & Tommy Tibong Carmelita Casuga

P50,000.00 59,000.00

August 7, 1990 August 28, 1990

November 4, 1990 and February 4, 1991 February 28, 1991

Corazon Dalisay Merlinda Gelacio

8,000.00 17,200.00

August 7, 1990 August 29, 1990

3
received P250,000.00 from one of her debtors, Rey
November 29, 199026 Rivera, and remitted the payment to Agrifina.41

Total Agrifina testified, on rebuttal, that she did not enter into
a re-lending business with Felicidad. When she asked
P284,659.00 Felicidad to consolidate her loans in one document, the
latter told her to seek the assistance of Atty. A-ayo.42
Agrifina narrated that Felicidad showed to her the way The lawyer suggested that Felicidad assign her credits in
to the debtors' houses to enable her to collect from them. order to help her collect her loans.43 She agreed to the
One of the debtors, Helen Cabang, did not execute any deeds of assignment to help Felicidad collect from the
promissory note but conformed to the Deed of debtors.44
Assignment of Credit which Felicidad executed in favor
of Agrifina.27 Eliza Abance conformed to the deed of On January 20, 2003, the trial court rendered its
assignment for and in behalf of her sister, Fely Cirilo.28 Decision45 in favor of Agrifina. The fallo of the
Edna Papat-iw was not able to affix her signature on the decision reads:
deed of assignment nor sign the promissory note because
she was in Taipei, Taiwan.29 WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendants ordering the latter to
Following the execution of the deeds of assignment and pay the plaintiffs (sic) the following amounts:
promissory notes, Agrifina was able to collect the total
amount of P301,000.00 from Felicidad's debtors.30 In 1. P472,000 as actual obligation with the stipulated
April 1990, she tried to collect the balance of Felicidad's interest of 6% per month from May 11, 1999 until the
account, but the latter told her to wait until her debtors said obligation is fully paid. However, the amount of
had money.31 When Felicidad reneged on her promise, P50,000 shall be deducted from the total accumulated
Agrifina filed a complaint in the Office of the Barangay interest for the same was already paid by the defendant
Captain for the collection of P773,000.00. However, no as admitted by the plaintiff in her complaint,
settlement was arrived at.32
2. P25,000 as attorney's fees,
The Case for Respondents
3. [T]o pay the costs.
Felicidad testified that she and her friend Agrifina had
been engaged in the money-lending business.33 Agrifina SO ORDERED.46
would lend her money with monthly interest,34 and she,
in turn, would re-lend the money to borrowers at a The trial court ruled that Felicidad's obligation had not
higher interest rate. Their business relationship turned been novated by the deeds of assignment and the
sour when Agrifina started complaining that she promissory notes executed by Felicidad's borrowers. It
(Felicidad) was actually earning more than Agrifina.35 explained that the documents did not contain any express
Before the respective maturity dates of her debtors' agreement to novate and extinguish Felicidad's
loans, Agrifina asked her to pay her account since obligation. It declared that the deeds and notes were
Agrifina needed money to buy a house and lot in Manila. separate contracts which could stand alone from the
However, she told Agrifina that she could not pay yet, as original indebtedness of Felicidad. Considering,
her debtors' loan payments were not yet due.36 Agrifina however, Agrifina's admission that she was able to
then came to her store every afternoon to collect from collect from Felicidad's debtors the total amount of
her, and persuaded her to go to Atty. Torres G. A-ayo for P301,000.00, this should be deducted from the latter's
legal advice.37 The lawyer suggested that she indorse accountability.47 Hence, the balance, exclusive of
the accounts of her debtors to Agrifina so that the latter interests, amounted to P472,000.00.
would be the one to collect from her debtors and she
would no longer have any obligation to Agrifina.38 She On appeal, the CA affirmed with modification the
then executed deeds of assignment in favor of Agrifina decision of the RTC and stated that, based on the
covering the sums of money due from her debtors. She promissory notes and acknowledgment receipts signed
signed the deeds prepared by Atty. A-ayo in the presence by Felicidad, the appellants secured loans from the
of Agrifina.39 Some of the debtors signed the appellee in the total principal amount of only
promissory notes which were likewise prepared by the P637,000.00, not P773,000.00 as declared by the trial
lawyer. Thereafter, Agrifina personally collected from court. The CA found that, other than Agrifina's bare
Felicidad's debtors.40 Felicidad further narrated that she testimony that she had lost the promissory notes and
acknowledgment receipts, she failed to present

4
competent documentary evidence to substantiate her 1. The Honorable Court of Appeals erred in ruling that
claim that Felicidad had, likewise, borrowed the the deeds of assignment in favor of petitioner has the
amounts of P100,000.00, P34,000.00, and P2,000.00. Of effect of payment of the original obligation even as it
the P637,000.00 total account, P585,659.00 was covered ruled out that the original obligation and the assigned
by the deeds of assignment and promissory notes; hence, credit are distinct and separate and can stand
the balance of Felicidad's account amounted to only independently from each other;
P51,341.00. The fallo of the decision reads:
2. The Honorable Court of Appeals erred in passing
WHEREFORE, in view of the foregoing, the decision upon issues raised for the first time on appeal; and
dated January 20, 2003 of the RTC, Baguio City, Branch
61 in Civil Case No. 4370-R is hereby MODIFIED. 3. The Honorable Court of Appeals erred in resolving
Defendants-appellants are hereby ordered to pay the fact not in issue.51
balance of the total indebtedness in the amount of
P51,341.00 plus the stipulated interest of 6% per month Petitioner avers that the appellate court erred in ruling
from May 11, 1999 until the finality of this decision. that respondents' original obligation amounted to only
P637,000.00 (instead of P773,000.00) simply because
SO ORDERED.48 she lost the promissory notes/receipts which evidenced
the loans executed by respondent Felicidad Tibong. She
The appellate court sustained the trial court's ruling that insists that the issue of whether Felicidad owed her less
Felicidad's obligation to Agrifina had not been novated than P773,000.00 was not raised by respondents during
by the deeds of assignment and promissory notes pre-trial and in their appellate brief; the appellate court
executed in the latter's favor. Although Agrifina was was thus proscribed from taking cognizance of the issue.
subrogated as a new creditor in lieu of Felicidad,
Felicidad's obligation to Agrifina under the loan Petitioner avers that respondents failed to deny, in their
transaction remained; there was no intention on their part verified answer, that they had secured the P773,000.00
to novate the original obligation. Nonetheless, the loan; hence, respondents are deemed to have admitted
appellate court held that the legal effects of the deeds of the allegation in the complaint that the loans secured by
assignment could not be totally disregarded. The respondent from her amounted to P773,000.00. As
assignments of credits were onerous, hence, had the gleaned from the trial court's pre-trial order, the main
effect of payment, pro tanto, of the outstanding issue is whether or not she should be made to pay this
obligation. The fact that Agrifina never repudiated or amount.
rescinded such assignments only shows that she had
accepted and conformed to it. Consequently, she cannot Petitioner further maintains that the CA erred in
collect both from Felicidad and her individual debtors deducting the total amount of P585,659.00 covered by
without running afoul to the principle of unjust the deeds of assignment executed by Felicidad and the
enrichment. Agrifina's primary recourse then is against promissory notes executed by the latter's debtors, and
Felicidad's individual debtors on the basis of the deeds that the balance of respondents' account was only
of assignment and promissory notes. P51,341.00. Moreover, the appellate court's ruling that
there was no novation runs counter to its holding that the
The CA further declared that the deeds of assignment primary recourse was against Felicidad's debtors.
executed by Felicidad had the effect of payment of her Petitioner avers that of the 11 deeds of assignment and
outstanding obligation to Agrifina in the amount of promissory notes, only two bore her signature.52 She
P585,659.00. It ruled that, since an assignment of credit insists that she is not bound by the deeds which she did
is in the nature of a sale, the assignors remained liable not sign. By assigning the obligation to pay petitioner
for the warranties as they are responsible for the their loan accounts, Felicidad's debtors merely assumed
existence and legality of the credit at the time of the the latter's obligation and became co-debtors to
assignment. petitioner. Respondents were not released from their
obligation under their loan transactions, and she had the
Both parties moved to have the decision reconsidered,49 option to demand payment from them or their debtors.
but the appellate court denied both motions on Citing the ruling of this Court in Magdalena Estates, Inc.
December 21, 2004.50 v. Rodriguez,53 petitioner insists that the first debtor is
not released from responsibility upon reaching an
Agrifina, now petitioner, filed the instant petition, agreement with the creditor. The payment by a third
contending that person of the first debtor's obligation does not constitute
novation, and the creditor can still enforce the obligation

5
against the original debtor. Petitioner also cites the
ruling of this Court in Guerrero v. Court of Appeals.54 We have carefully reviewed the brief of respondents as
appellants in the CA, and find that, indeed, they had
In their Comment on the petition, respondents aver that raised the issue of whether they received P773,000.00 by
by virtue of respondent Felicidad's execution of the way of loans from petitioner. They averred that, as
deeds of assignment, and the original debtors' execution gleaned from the documentary evidence of petitioner in
of the promissory notes (along with their conformity to the RTC, the total amount they borrowed was only
the deeds of assignment with petitioner's consent), their P673,000.00. They asserted that petitioner failed to
loan accounts with petitioner amounting to P585,659.00 adduce concrete evidence that they received
had been effectively extinguished. Respondents point P773,000.00 from her.55
out that this is in accordance with Article 1291,
paragraph 2, of the Civil Code. Thus, the original We agree, however, with petitioner that the appellate
debtors of respondents had been substituted as court erred in reversing the finding of the RTC simply
petitioner's new debtors. because petitioner failed to present any document or
receipt signed by Felicidad.
Respondents counter that petitioner had been subrogated
to their right to collect the loan accounts of their debtors. Section 10, Rule 8 of the Rules of Civil Procedure
In fact, petitioner, as the new creditor of respondents' requires a defendant to "specify each material allegation
former debtors had been able to collect the latter's loan of fact the truth of which he does not admit and,
accounts which amounted to P301,000.00. The sums whenever practicable, x x x set forth the substance of the
received by respondents' debtors were the same loans matters upon which he relies to support his denial.56
which they obliged to pay to petitioner under the
promissory notes executed in petitioner's favor. Section 11, Rule 8 of the same Rules provides that
allegations of the complaint not specifically denied are
Respondents aver that their obligation to petitioner deemed admitted.57
cannot stand or exist separately from the original
debtors' obligation to petitioner as the new creditor. If The purpose of requiring the defendant to make a
allowed to collect from them as well as from their specific denial is to make him disclose the matters
original debtors, petitioner would be enriching herself at alleged in the complaint which he succinctly intends to
the expense of respondents. Thus, despite the fact that disprove at the trial, together with the matter which he
petitioner had collected P172,600.00 from respondents relied upon to support the denial. The parties are
and P301,000.00 from the original debtors, petitioner compelled to lay their cards on the table.58
still sought to collect P773,000.00 from them in the
RTC. Under the deeds of assignment executed by A denial is not made specific simply because it is so
Felicidad and the original debtors' promissory notes, the qualified by the defendant. A general denial does not
original debtors' accounts were assigned to petitioner become specific by the use of the word "specifically."
who would be the new creditor. In fine, respondents are When matters of whether the defendant alleges having
no longer liable to petitioner for the balance of their loan no knowledge or information sufficient to form a belief
account inclusive of interests. Respondents also insist are plainly and necessarily within the defendant's
that petitioner failed to prove that she (petitioner) was knowledge, an alleged "ignorance or lack of
merely authorized to collect the accounts of the original information" will not be considered as a specific denial.
debtors so as to to facilitate the payment of respondents' Section 11, Rule 8 of the Rules also provides that
loan obligation. material averments in the complaint other than those as
to the amount of unliquidated damages shall be deemed
The Issues admitted when not specifically denied.59 Thus, the
answer should be so definite and certain in its allegations
The threshold issues are: (1) whether respondent that the pleader's adversary should not be left in doubt as
Felicidad Tibong borrowed P773,000.00 from petitioner; to what is admitted, what is denied, and what is covered
and (2) whether the obligation of respondents to pay the by denials of knowledge as sufficient to form a belief.60
balance of their loans, including interest, was partially
extinguished by the execution of the deeds of assignment In the present case, petitioner alleged the following in
in favor of petitioner, relative to the loans of Edna Papat- her complaint:
iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in
the total amount of P371,000.00. 2. That defendants are indebted to the plaintiff in the
principal amount of SEVEN HUNDRED SEVENTY-
The Ruling of the Court THREE THOUSAND PESOS (P773,000.00) Philippine

6
Currency with a stipulated interest which are broken respondents had admitted the existence of their
down as follows. The said principal amounts was P773,000.00 loan from petitioner.
admitted by the defendants in their counter-affidavit
submitted before the court. Such affidavit is hereby We agree with the finding of the CA that petitioner had
attached as Annex "A;"61 no right to collect from respondents the total amount of
P301,000.00, which includes more than P178,980.00
xxxx which respondent Felicidad collected from Tibong,
Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio,
H) The sum of THIRTY FOUR THOUSAND PESOS and Manuel. Petitioner cannot again collect the same
(P34,000.00) with interest at six (6%) per cent per month amount from respondents; otherwise, she would be
and payable on October 19, 1989, however[,] the receipt enriching herself at their expense. Neither can petitioner
for the meantime cannot be recovered as it was collect from respondents more than P103,500.00 which
misplaced by the plaintiff but the letter of defendant she had already collected from Nimo, Cantas, Rivera,
FELICIDAD TIBONG is hereby attached as Annex "H" Donguis, Fernandez and Ramirez.
for the appreciation of the Honorable court;
There is no longer a need for the Court to still resolve
I) The sum of ONE HUNDRED THOUSAND PESOS the issue of whether respondents' obligation to pay the
(P100,000.00) with interest at five (5%) percent per balance of their loan account to petitioner was partially
month, obtained on July 14, 1989 and payable on extinguished by the promissory notes executed by Juliet
October 14, 1989. Such receipt was lost but admitted by Tibong, Corazon Dalisay, Rita Chomacog, Carmelita
the defendants in their counter-affidavit as attached [to] Casuga, Merlinda Gelacio and Antoinette Manuel
this complaint and marked as Annex "A" mentioned in because, as admitted by petitioner, she was able to
paragraph one (1); x x x62 collect the amounts under the notes from said debtors
and applied them to respondents' accounts.
In their Answer, respondents admitted that they had
secured loans from petitioner. While the allegations in Under Article 1231(b) of the New Civil Code, novation
paragraph 2 of the complaint were specifically denied, is enumerated as one of the ways by which obligations
respondents merely averred that petitioner and are extinguished. Obligations may be modified by
respondent Felicidad entered into an agreement for the changing their object or principal creditor or by
lending of money to interested borrowers at a higher substituting the person of the debtor.63 The burden to
interest rate. Respondents failed to declare the exact prove the defense that an obligation has been
amount of the loans they had secured from petitioner. extinguished by novation falls on the debtor.64 The
They also failed to deny the allegation in paragraph 2 of nature of novation was extensively explained in Iloilo
the complaint that respondent Felicidad signed and Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano,
submitted a counter-affidavit in I.S. No. 93-334 where Jr.,65 as follows:
she admitted having secured loans from petitioner in the
amount of P773,000.00. Respondents, likewise, failed to Novation may either be extinctive or modificatory, much
deny the allegation in paragraph 2(h) of the complaint being dependent on the nature of the change and the
that respondents had secured a P34,000.00 loan payable intention of the parties. Extinctive novation is never
on October 19, 1989, evidenced by a receipt which presumed; there must be an express intention to novate;
petitioner had misplaced. Although respondents in cases where it is implied, the acts of the parties must
specifically denied in paragraph 2.11 of their Answer the clearly demonstrate their intent to dissolve the old
allegations in paragraph 2(I) of the complaint, they obligation as the moving consideration for the
merely alleged that "they have not received sums of emergence of the new one. Implied novation necessitates
money from the plaintiff without any receipt therefor." that the incompatibility between the old and new
obligation be total on every point such that the old
Respondents, likewise, failed to specifically deny obligation is completely superseded by the new one. The
another allegation in the complaint that they had secured test of incompatibility is whether they can stand
a P100,000.00 loan from petitioner on July 14, 1989; together, each one having an independent existence; if
that the loan was payable on October 14, 1989; and they cannot and are irreconciliable, the subsequent
evidenced by a receipt which petitioner claimed to have obligation would also extinguish the first.
lost. Neither did respondents deny the allegation that
respondents admitted their loan of P100,000.00 in the An extinctive novation would thus have the twin effects
counter-affidavit of respondent Felicidad, which was of, first, extinguishing an existing obligation and,
appended to the complaint as Annex "A." In fine, second, creating a new one in its stead. This kind of
novation presupposes a confluence of four essential

7
requisites: (1) a previous valid obligation; (2) an subsequent conduct of the parties may show acceptance
agreement of all parties concerned to a new contract; (3) as clearly as an express agreement, albeit implied.72
the extinguishment of the old obligation; and (4) the
birth of a valid new obligation. Novation is merely We find in this case that the CA correctly found that
modificatory where the change brought about by any respondents' obligation to pay the balance of their
subsequent agreement is merely incidental to the main account with petitioner was extinguished, pro tanto, by
obligation (e.g., a change in interest rates or an extension the deeds of assignment of credit executed by respondent
of time to pay); in this instance, the new agreement will Felicidad in favor of petitioner.
not have the effect of extinguishing the first but would
merely supplement it or supplant some but not all of its An assignment of credit is an agreement by virtue of
provisions.66 (Citations Omitted) which the owner of a credit, known as the assignor, by a
legal cause, such as sale, dation in payment, exchange or
Novation which consists in substituting a new debtor donation, and without the consent of the debtor, transfers
(delegado) in the place of the original one (delegante) his credit and accessory rights to another, known as the
may be made even without the knowledge or against the assignee, who acquires the power to enforce it to the
will of the latter but not without the consent of the same extent as the assignor could enforce it against the
creditor. Substitution of the person of the debtor may be debtor.73 It may be in the form of sale, but at times it
effected by delegacion, meaning, the debtor offers, and may constitute a dation in payment, such as when a
the creditor (delegatario), accepts a third person who debtor, in order to obtain a release from his debt, assigns
consents to the substitution and assumes the obligation. to his creditor a credit he has against a third person.74
Thus, the consent of those three persons is necessary.67
In this kind of novation, it is not enough to extend the In Vda. de Jayme v. Court of Appeals,75 the Court held
juridical relation to a third person; it is necessary that the that dacion en pago is the delivery and transmission of
old debtor be released from the obligation, and the third ownership of a thing by the debtor to the creditor as an
person or new debtor take his place in the relation.68 accepted equivalent of the performance of the obligation.
Without such release, there is no novation; the third It is a special mode of payment where the debtor offers
person who has assumed the obligation of the debtor another thing to the creditor who accepts it as equivalent
merely becomes a co-debtor or a surety. If there is no of payment of an outstanding debt. The undertaking
agreement as to solidarity, the first and the new debtor really partakes in one sense of the nature of sale, that is,
are considered obligated jointly.69 the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the
In Di Franco v. Steinbaum,70 the appellate court ruled debtor's obligation. As such, the essential elements of a
that as to the consideration necessary to support a contract of sale, namely, consent, object certain, and
contract of novation, the rule is the same as in other cause or consideration must be present. In its modern
contracts. The consideration need not be pecuniary or concept, what actually takes place in dacion en pago is
even beneficial to the person promising. It is sufficient if an objective novation of the obligation where the thing
it be a loss of an inconvenience, such as the offered as an accepted equivalent of the performance of
relinquishment of a right or the discharge of a debt, the an obligation is considered as the object of the contract
postponement of a remedy, the discontinuance of a suit, of sale, while the debt is considered as the purchase
or forbearance to sue. price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of
In City National Bank of Huron, S.D. v. Fuller,71 the totally extinguishing the debt or obligation.76
Circuit Court of Appeals ruled that the theory of
novation is that the new debtor contracts with the old The requisites for dacion en pago are: (1) there must be a
debtor that he will pay the debt, and also to the same performance of the prestation in lieu of payment (animo
effect with the creditor, while the latter agrees to accept solvendi) which may consist in the delivery of a
the new debtor for the old. A novation is not made by corporeal thing or a real right or a credit against the third
showing that the substituted debtor agreed to pay the person; (2) there must be some difference between the
debt; it must appear that he agreed with the creditor to prestation due and that which is given in substitution
do so. Moreover, the agreement must be based on the (aliud pro alio); and (3) there must be an agreement
consideration of the creditor's agreement to look to the between the creditor and debtor that the obligation is
new debtor instead of the old. It is not essential that immediately extinguished by reason of the performance
acceptance of the terms of the novation and release of of a prestation different from that due.77
the debtor be shown by express agreement. Facts and
circumstances surrounding the transaction and the All the requisites for a valid dation in payment are
present in this case. As gleaned from the deeds,

8
respondent Felicidad assigned to petitioner her credits Equally significant is the fact that, since 1990, when
"to make good" the balance of her obligation. Felicidad respondent Felicidad executed the deeds, petitioner no
testified that she executed the deeds to enable her to longer attempted to collect from respondents the balance
make partial payments of her account, since she could of their accounts. It was only in 1999, or after nine (9)
not comply with petitioner's frenetic demands to pay the years had elapsed that petitioner attempted to collect
account in cash. Petitioner and respondent Felicidad from respondents. In the meantime, petitioner had
agreed to relieve the latter of her obligation to pay the collected from respondents' debtors the amount of
balance of her account, and for petitioner to collect the P301,000.00.
same from respondent's debtors.
While it is true that respondent Felicidad likewise
Admittedly, some of respondents' debtors, like Edna authorized petitioner in the deeds to collect the debtors'
Papat-iw, were not able to affix their conformity to the accounts, and for the latter to pay the same directly, it
deeds. In an assignment of credit, however, the consent cannot thereby be considered that respondent merely
of the debtor is not essential for its perfection; the authorized petitioner to collect the accounts of
knowledge thereof or lack of it affecting only the respondents' debtors and for her to apply her collections
efficaciousness or inefficaciousness of any payment that in partial payments of their accounts. It bears stressing
might have been made. The assignment binds the debtor that petitioner, as assignee, acquired all the rights and
upon acquiring knowledge of the assignment but he is remedies passed by Felicidad, as assignee, at the time of
entitled, even then, to raise against the assignee the same the assignment.82 Such rights and remedies include the
defenses he could set up against the assignor78 right to collect her debtors' obligations to her.
necessary in order that assignment may fully produce
legal effects. Thus, the duty to pay does not depend on Petitioner cannot find solace in the Court's ruling in
the consent of the debtor. The purpose of the notice is Magdalena Estates. In that case, the Court ruled that the
only to inform that debtor from the date of the mere fact that novation does not follow as a matter of
assignment. Payment should be made to the assignee and course when the creditor receives a guaranty or accepts
not to the original creditor. payments from a third person who has agreed to assume
the obligation when there is no agreement that the first
The transfer of rights takes place upon perfection of the debtor would be released from responsibility. Thus, the
contract, and ownership of the right, including all creditor can still enforce the obligation against the
appurtenant accessory rights, is acquired by the original debtor.
assignee79 who steps into the shoes of the original
creditor as subrogee of the latter80 from that amount, the In the present case, petitioner and respondent Felicidad
ownership of the right is acquired by the assignee. The agreed that the amounts due from respondents' debtors
law does not require any formal notice to bind the debtor were intended to "make good in part" the account of
to the assignee, all that the law requires is knowledge of respondents. Case law is that, an assignment will,
the assignment. Even if the debtor had not been notified, ordinarily, be interpreted or construed in accordance
but came to know of the assignment by whatever means, with the rules of construction governing contracts
the debtor is bound by it. If the document of assignment generally, the primary object being always to ascertain
is public, it is evidence even against a third person of the and carry out the intention of the parties. This intention
facts which gave rise to its execution and of the date of is to be derived from a consideration of the whole
the latter. The transfer of the credit must therefore be instrument, all parts of which should be given effect, and
held valid and effective from the moment it is made to is to be sought in the words and language employed.83
appear in such instrument, and third persons must
recognize it as such, in view of the authenticity of the Indeed, the Court must not go beyond the rational scope
document, which precludes all suspicion of fraud with of the words used in construing an assignment, words
respect to the date of the transfer or assignment of the should be construed according to their ordinary meaning,
credit.81 unless something in the assignment indicates that they
are being used in a special sense. So, if the words are
As gleaned from the deeds executed by respondent free from ambiguity and expressed plainly the purpose
Felicidad relative to the accounts of her other debtors, of the instrument, there is no occasion for interpretation;
petitioner was authorized to collect the amounts of but where necessary, words must be interpreted in the
P6,000.00 from Cabang, and P63,600.00 from Cirilo. light of the particular subject matter.84 And surrounding
They obliged themselves to pay petitioner. Respondent circumstances may be considered in order to understand
Felicidad, likewise, unequivocably declared that Cabang more perfectly the intention of the parties. Thus, the
and Cirilo no longer had any obligation to her. object to be accomplished through the assignment, and

9
the relations and conduct of the parties may be
considered in construing the document.

Although it has been said that an ambiguous or uncertain


assignment should be construed most strictly against the
assignor, the general rule is that any ambiguity or
uncertainty in the meaning of an assignment will be
resolved against the party who prepared it; hence, if the
assignment was prepared by the assignee, it will be
construed most strictly against him or her.85 One who
chooses the words by which a right is given ought to be
held to the strict interpretation of them, rather than the
other who only accepts them.86

Considering all the foregoing, we find that respondents


still have a balance on their account to petitioner in the
principal amount of P33,841.00, the difference between
their loan of P773,000.00 less P585,659.00, the payment
of respondents' other debtors amounting to P103,500.00,
and the P50,000.00 payment made by respondents.

IN LIGHT OF ALL THE FOREGOING, the petition is


DENIED. The Decision and Resolution of the Court of
Appeals are AFFIRMED with MODIFICATION in that
the balance of the principal account of the respondents to
the petitioner is P33,841.00. No costs.

SO ORDERED.

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